Home >Politics >Policy >Health economists urge government to increases cess on tobacco

The World Health Organisation (WHO) recommends that countries impose tobacco excise taxes that amount to at least 75% or more of retail price to achieve the dual objective of reducing tobacco use and increasing government revenue. The overall tax rate on all tobacco products in India is remains low compared to other middle-income countries including those in South Asia. Currently, the tax burden on bidis post-GST is only 22% compared to 53% for cigarettes and about 60% for smokeless tobacco. All of these are well below the WHO recommended rate of 75%.

Health economists claim that it is critical that the 28% GST rate category be retained for demerit/sin goods such as tobacco. This serves two purposes, as it firstly sends out a strong public health message discouraging the consumption of sin goods. Secondly, having a separate sin tax category decreases the pressure on the other three rate bands which are applicable to essential commodities allowing the government to have a relatively lower standard GST rates for those items while still maintaining a revenue neutral position. Since tobacco products are relatively less price elastic, a high GST rate on them would not lead to loss of revenue but instead increase the revenue. “Imposing additional cess on all tobacco products, including bidis, will be a huge win for public health and revenue generation," said Bhavna B Mukhopadhyay, Chief Executive, Voluntary Health Association of India.

“Compensation cess constitutes more than two thirds of the total tax revenue from cigarettes. As these cesses were not revised for more than a year, cigarettes have become much more affordable compared to the time GST was implemented and it warrants significant upward revision of cess rates applied on cigarettes," Rijo John, Economist & Health Policy Analyst said.

Taxation levels on bidis have remained low based on the arguments that bidis are a poor man’s pleasure and higher taxation will affect the livelihood of millions who depend on the trade for their sustenance. Bidis contribute to the majority of the 10 lakh deaths in India every year as well as the staggering economic burden caused by tobacco use and tobacco related diseases.

“There is ample evidence about bidis being the killer and not the pleasure of the poor. It should be made unaffordable for the poor to save them from a lifetime of misery and suffering", said Harit Chaturvedi, Chairman, Surgical Oncology, Max Health Care.

The total economic costs attributable to bidi smoking from all diseases and deaths in the year 2017 for persons aged 30-69 years amounted to 805.5 billion ($12.4 billion) while the excise tax revenue from bidi was only 4.2 billion in 2017 which is only 0.5% of this costs. “Apart from the public health rationale for curbing bidi smoking among 72 million bidi smokers in India, there is a strong economic rationale for imposing a compensation cess on bidis as the economic costs from bidis are gigantic. Imposing a compensation cess on bidis would significantly increase the compensation cess pool for the government and also bring down bidi smoking," John said.

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